Last week, the RBA increased interest rates again, putting further pressure on mortgage holders, but will this rate rise also impact the construction industry and new homes?
As many building companies have defaulted over the past few years due to labour shortages and the record price of building materials, it’s no wonder many Australians are worried about building a new home. As such, you would think the latest rate rise would spell disaster for the building industry.
I’m not surprised that many think the housing market is all doom and gloom, but is this negative perception about the future of the construction industry an opportunity in waiting? As they say, it is always darkest before dawn, so let’s look at some stats that make me think we might be about to boom rather than experience more doom.
Construction is important for Australia as it accounts for around 8 to 9% of the nation’s GDP, contributing $4.04 billion to the economy as of the second quarter of this year. This is up 2.02% from the first quarter’s $3.96 billion contribution. Importantly, figure has steadily risen since a low of $3.4 billion back in 2020.
Corelogic’s Cordell Construction Cost Index (CCCI) tracks the cost of building a home. As of the June quarter, it revealed a growth rate of only 0.7% — the lowest since September 2020. The CCCI also reported an 8.4% increase on a yearly basis; however, last year had the largest annual index rise on record with an increase of 11.9%.
Migration remains high and will add to the labour supply in conjunction with the demand for new homes, so it will be interesting to see how this dynamic plays out. We know the government is ready to spend $254.8 billion on infrastructure over the next four years and has promised to build 1.2 million new homes. Given this, I suspect some big players in the industry are ready for the inevitable surge in construction, which is exciting for those looking to get into some good stocks.
Boral Limited (ASX:BLD) is Australia's largest listed construction materials company, with an international footprint from the US to Asia. The company stated on November 11 that it had upgraded its earnings guidance for FY24 from $270-300 million to $300-330 million. CSR LIMITED (ASX:CSR) is another big construction materials company also seeing record results, reporting half-year earnings of $165 million, up 18% yearly.
All of this is good news, as it indicates there are multiple signs that the building and construction industry is finding its legs and while there are some challenges ahead, I believe there is a boom just around the corner. Given this, I recommend you get your boots on and hard hats out so you’re ready when the opportunities arise.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online at www.wealthwithin.com.au